Is flexible retirement the solution to the skills gap problem?

Plans
to abolish the compulsory retirement age may keep skills in the workplace, but
some feel it might be opening a can of worms. Richard Staines reports

Next
month a working party will meet to debate the details of age discrimination
legislation which will affect all UK employers.

It
follows employment minister Margaret Hodge’s announcement to a select committee
earlier this month that the Government intends to abolish compulsory retirement
at 65 and allow older employees to choose how long they want to continue
working.

Bodies,
including the CBI, CIPD, Employers’ Forum on Age, TUC, Socpo and Age Concern,
will work with the Government to develop the age discrimination legislation,
with the new rules becoming law in 2006.

There
are some key employer concerns that the working party will have to tackle.

Sam
Mercer, campaign manager at the Employers’ Forum on Age, said, “The first issue
is that the law has to be workable and flexible and employers have to be consulted
on the law’s content.”

She
believes there is a “serious lack of communication” between HR managers and
pension fund managers and this has to change if flexible retirement systems are
to be implemented.

The
Employers’ Forum on Age also believes the Inland Revenue will have to revise
its laws on pensions. At the moment, only fully retired people qualify for
state pensions with older people working part-time relying only on their
salaries to support them. The forum wants a more flexible system, where older
employees working part-time would be able to withdraw part of their pensions.

Changes
to the retirement age and its possible impact on pensions could make
recruitment harder in the public sector, according to Socpo adviser Tim
Rothwell. He said, “One of the main reasons people go into local government is
that there is an excellent pension system. We shall have to take a careful look
to ensure the changes do not disrupt the existing pension system too much and
cause problems for us when we try and recruit staff.”

Socpo
also wants the Government to clarify at an early stage which occupations are
exempt from the retirement ruling. Police officers and firefighters, for
example, are required to have good fitness levels and compulsory retirement
from active duty could be justified on fitness grounds.

But
there are those who question the change to contractual requirements of
retirement more fundamentally.

Roger
Brown, senior partner of law firm Endale & Company, believes the Government
has missed the point. He questions whether ending a compulsory retirement age
will prevent age discrimination against those seeking work.

Brown
said, “The problem that the Government was seeking to tackle, but has missed
along the way, was the blatant discrimination against anyone over 40 securing a
job in mainstream industry and commerce.

“Removing
a compulsory retirement age will do nothing to stop such discrimination. What
it will do is create chaos in all aspects of the employment process, not least
state and occupational pension provision.”

CBI
director-general Digby Jones believes the outlawing of a contractual retirement
could lead to a US-style scenario, with many firms face rising litigation costs
from disgruntled employees.

He
said, “There is a need to raise the level of employment among older workers,
given skills shortages and an ageing population – but doing away with
contractual retirement ages is not the solution. There may be justifiable
reasons why an employer cannot extend retirement age. Indeed, it might be irresponsible
to employ people over retirement age.”

While
details of changing compulsory retirement and other proposals will be discussed
over the coming months by the working party, legislation will definitely be
enacted. This is due to the ratification of an EU directive last May, which
makes age discrimination at work illegal.

Employers
will have five years to comply with the new rules produced, but the Employers’
Forum on Age is advising companies to introduce flexible retirement in advance
of the legislation.

It
is proposing a “decade of retirement” model, in which an older member of staff
agrees with the employer on a date when he or she will retire. The amount of
work expected of an individual can be reduced over several years and his or her
role changed to make the transition smoother.

Hodge
urged companies to adopt this approach when she announced the changes to the
select committee earlier this month. She called for employers to change their
cultures to pre-empt the legislation. They need to overcome misconceptions
about older workers having poor sickness absence records and not being able to
adapt to new technology, she said.

Hodge
said, “We believe the culture change is necessary to ensure we make the best
use of the undoubted experience and talents of all people who want to work.

“The
demographic changes mean the economy will not survive without using the talents
and experience of older workers.”

Hodge
is not the only one who believes HR teams should be dealing with ageism now.

The
TUC feels there is a good business case for implementing the DfEE’s existing
code of practice on age discrimination.

For
instance, firms following the code are required to evaluate the loss of skills
before operating early retirement schemes and consider alternatives for those
with crucial abilities.

Kay
Carberry, head of equal rights at the TUC, said, “With compulsory retirement,
companies could be losing staff who have accumulated a lot of experience and
knowledge in that workplace.”

CIPD
adviser Mike Emmott advised employers to adopt this “enlightened approach” to
managing people. He said, “Employers should not be looking at people on
superficial grounds such as age – they should be looking at what they are doing
for the company. Perhaps they could look at pension provision and moving older
people into part-time roles. Older people would perhaps not be so worried about
a drop in income – particularly if they had access to some of their pension.”

But
a timely flexible retirement, where employees are able to draw on state and
occupational pensions while they work part-time, will not be possible without
changes to the Inland Revenue’s rules.

Ministers
agree in principle that rules should be relaxed, but the details need to be
thrashed out if companies are to benefit from progressive retirement measures.

Government
advice

The
Government urges companies to:

–
Make sure retirement programmes meet the needs of the organisation

–
Use succession planning effectively so that companies do not lose key skills
when employees retire

–
Investigate whether different pension arrangements would ease the problem

–
Agree on a retirement policy with employees, communicate it effectively and
apply it fairly

–
Support and guide people approaching retirement age

–
Ensure employees have choice and flexibility.

People
cannot draw on state pensions before the age of 65, but they can draw on
occupational pensions before this.

Employees
must have retired from the employer with whom they arranged the scheme before
they draw on occupational pensions. They can draw on personal pensions whether
or not they continue to work for the same employer.